Problem 2 Elixir Springs is a natural monopoly that bottles Elixir, a unique health product with no substitutes. The total fixed cost incurred by Elixir Springs is $150,000, and its marginal cost is 10 cents a bottle. The figure illustrates the demand for Elixir. a) What is the price of a bottle of Elixir and how many bottles does Elixir Springs sell? b) Does Elixir Springs maximize total surplus or producer surplus? Figure 1 Elixir Springs 50 40 30 20 ATC MC MR 0.5 1.0 1.5 2.0 2.5 Quantity (millions of bottles/year) Price (cents per bottle) 10

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Monopoly Market

When a company and its products dominate a sector or an industry, it is termed a monopoly. When a firm and its products control a market, then it is called a monopoly.